A down payment is the upfront portion of a home’s purchase price that a buyer pays in cash at closing. Expressed as a percentage of the total price, it reduces the lender’s loan amount and represents the buyer’s initial equity stake.
Earnest money is a good-faith deposit when your offer is accepted. A deposit can refer broadly to any upfront payment. Equity is the ownership stake you hold in the property. The down payment specifically covers part of the purchase price at closing.
Lenders view a sizeable down payment as evidence of financial discipline, improving your chances of loan approval and potentially securing better terms.
Your down payment creates immediate equity and lowers your LTV ratio (loan amount ÷ home value). A lower LTV often translates to lower rates and fees.
Putting more down reduces monthly payments, slashes total interest costs and offers peace of mind by minimizing debt exposure.
Primary residence borrowers can sometimes qualify with as little as 3% down, but 20% avoids PMI.
Backed by the Federal Housing Administration, FHA loans require only 3.5% down for buyers with a credit score above 580.
Veterans Affairs loans often allow 0% down for eligible veterans. USDA loans also offer low or zero down payment options in qualifying rural areas.
Loans exceeding conforming limits typically demand 20% or more down, reflecting higher risk for lenders.
More equity at purchase can earn you a lower interest rate, since the lender’s risk is smaller.
If you put down less than 20% on a conventional loan, PMI kicks in—typically 0.5%–1% of the loan annually until you reach 20% equity.
Higher down payments shrink your loan balance, reducing both monthly payments and lifetime interest paid.
Checking, savings, CDs, stocks and bonds are primary sources—documented via bank statements.
Lenders often allow parents or relatives to gift down payment funds. Seller concessions can also cover part of your payment if negotiated.
Many programs permit partial withdrawals or loans from retirement accounts. Explore state and local down-payment assistance grants for first-timers.
During underwriting, lenders require statements showing you have liquid assets equal to your down payment amount.
Your down payment funds are held in escrow by a closing agent, ensuring they’re disbursed only when all conditions are met.
Earnest money is submitted with your accepted offer. The remaining down payment balance is wired or delivered to escrow on closing day.
While 20% avoids PMI, many programs exist with far lower minimums.
Earnest money holds your offer; the down payment completes your equity stake at closing.
Most lenders prohibit borrowed funds. Using active debt can hurt qualification and violate loan rules.
Conventional: 3%–20%. FHA: 3.5% minimum. Requirements vary by lender and credit.
Yes, on conventional loans under 20% down you’ll pay PMI until you reach sufficient equity or refinance.
Yes—most lenders allow family gifts and approved retirement-account distributions with proper documentation.
No—earnest money secures your offer; it’s applied toward the down payment at closing.
Larger down payments generally yield lower rates, reflecting reduced lender risk.
The full down payment is due at closing, held by escrow until the sale is recorded.
Yes—many states and nonprofits offer grants, forgivable loans and matched savings programs for qualifying buyers.
Create a dedicated savings account, automate transfers and cut nonessential expenses.
Use mortgage calculators to estimate required down payment, monthly costs and PMI thresholds.
Check state housing finance agencies, HUD-approved counseling agencies and nonprofit homeownership centers.
Conclusion: A down payment is your initial equity investment in a home purchase. It influences loan approval, interest rates, PMI requirements and monthly payments. Assess your savings goals, weigh loan type options and consult lenders early to map out your ideal down payment strategy. For more tools, explore trusted mortgage calculators and first-time buyer guides.
